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Costing Exercise

Costing Exercise

You are asked to run a Personal Development and Planning course. The course is compulsory for certain groups of students but is not assessed. The course will run in term two and you are told that the cost per student must not exceed £10. At the start of term one you are advised that there will be 95 students attending the course so you book a room which will seat 100 students at a total cost of £200 and order workbooks. These come in packs of 20 at £30 per pack. After allowing for your time in preparing and running the course, the costs look like this.

Room hire

£200

Workbooks

£150

Course planning

£360

Course delivery

£220

Total for 95 students

£930.00

What is the cost per student?

You will see that it is £930/95 = £9.80 so this is within your allowed costs.

At the end of term one you are told that due to an administrative error, you have been given the wrong figures and in fact there will be 98 students attending.

Now what is the cost per student?

£930/98 = £9.50. It is more cost efficient to run the course with three additional students.

What is the marginal cost of these students?

In fact the marginal cost is zero. There are no additional costs for preparing and delivering the course as there is no assessment,  the room will hold the additional students and you have enough workbooks.

Three days before the course is due to start you are advised that in fact there are will be seven additional student making a total of 102. At such short notice the only larger room you can book will seat 125 and costs £250. In addition you have to buy another pack of workbooks. The workbooks include a year-specific calendar so they will not be useable if the course runs again next academic year.

What is the cost per student? What is the marginal cost for these seven students?

Room hire

£275

Workbooks

£180

Course planning

£360

Course delivery

£220

Total for 102 students

£1035.00

Cost per student £1035/102 = £10.15

Because you have had to buy more books (most of which will be wasted) and hire a larger room (with a number of spare seats), the cost per student is now higher than allowed.

Taking on four further additional students has cost an extra £105 - £75 for the room and £30 for the workbooks. These students have cost £105/4 = £26.25 each.

You have spare seats and workbooks and therefore could offer the course as an option to other students.

How many extra students would you need to take to return to within the allowed costs?

The total cost is £1035 so you would in fact only need two more students – within your new room capacity and workbook supply at which point your costs would be £1035/104 = £9.95 per student.

What is the maximum number of extra students you could take?

You now have 23 spare seats but only 18 spare workbooks. You can therefore take 18 extra students (total 120) at no additional cost (marginal cost zero, cost per student £8.63). If you fill up all 23 seats then you will have to buy another pack of twenty workbooks, of which fifteen will be unused. Is it better to have spare seats or spare workbooks?

The total costs for filling the lecture theatre is

Room hire

£275

Workbooks

£210

Course planning

£360

Course delivery

£220

Total for 125 students

£1065.00

The cost per student is £8.52 - well within the allowed cost. The total extra cost for running with 125 rather than 120 students is only £30 (£6 per student) as the room hire (fixed cost) remains the same.